HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Marcic (Respondent) v. Thames Water Utilities Limited (Appellants)

[2003] UKHL 66

LORD NICHOLLS OF BIRKENHEAD

My Lords,

1. This appeal concerns flooding of a particularly unpleasant kind: from foul water sewers as well as surface water sewers. Sewer flooding is a nationwide environmental problem, arising largely from the building of ever more houses to meet the housing demand. Sewers and drains, sufficient when laid in the 19th century or later, are no longer adequate to cope with the volume of surface water entering the public drainage system in times of heavy rainfall. Overloaded surface water sewers spill into the foul water sewers. As a result, all too often water and untreated sewage overflow at the lower levels of the drainage system, causing misery for the people living there.

2. The risk of this happening has been reduced over the last ten years, but many thousands of people, with varying degrees of frequency, still suffer in this way. Currently 6,000 properties in England and Wales suffer internal sewer flooding each year. The water floods into the houses and buildings. Half these incidents arise from 'one-off' causes such as blocked or collapsed sewers or pumping station failures. The other half arise from overloaded sewers. The flow of water is greater than the sewer's hydraulic capacity. But the number of properties affected by this problem is not confined to 6,000. The properties flooded are not the same every year. Currently about 15,000 properties are at risk of internal sewer flooding at least once every ten years. Many properties are at risk in this way twice or more in ten years.

3. Additionally, the limited information available suggests that between 15,000 and 20,000 properties are affected by external sewer flooding. External flooding affects gardens, driveways and yards, but does not permeate into the houses or buildings themselves.

The flooding in Old Church Lane

4. Mr Peter Marcic is one person who has endured serious and repeated external sewer flooding arising from overloaded sewers. He lives at Stanmore. He owns and occupies 92 Old Church Lane as his home. This is a substantial family house with front and rear gardens. Mr Marcic has lived there for over twenty years and is now in his mid-sixties.

5. The house is served by two public sewers passing under Old Church Lane, one for surface water, the other for foul water. They are part of the public sewerage system for draining the London Borough of Harrow. When laid, probably in the 1930s, the surface water sewer was constructed to the standard then generally accepted and its capacity was sufficient to meet any usage which could reasonably be anticipated. Because of subsequent housing development in the area, for some years now whenever there is heavy rain the surface water sewer in Old Church Lane becomes overloaded as a result of the volume of water entering surface water sewers higher up the catchment area.

6. When this occurs Mr Marcic's house, which is at the low point of the drainage system, suffers badly. From June 1992 his property has been regularly and seriously affected by flooding of surface water and also by back flow of foul water from the two sewers in Old Church Lane. There were two such incidents in 1992, one in each year from 1993 to 1996, two in 1997, none in 1998, four in 1999 and four or five in 2000. When these incidents occur the surface water sewer in Old Church Lane becomes so full that effluent overflows through gullies and onto Mr Marcic's property. Surface water also enters the public foul water sewer under Old Church Lane. So it too becomes overloaded, causing effluent to flow back into Mr Marcic's property through the drain connecting his house to the public sewer in the lane. Initially, in 1992, it took half an hour of heavy rainfall to bring about one of these flooding incidents. But the position deteriorated. By 2001 fifteen minutes of heavy rain or some hours of steady drizzle were sufficient.

7. When these flooding incidents occur the water reaches the brick walls of Mr Marcic's house, above as well as below the level of the damp course, often rising to within an inch of the level of the front door threshold. The house is affected by damp and subsidence and may have been damaged structurally. Mr Marcic constructed his own flood defence system in his front garden, at a cost of £16,000. To an extent this alleviated the damage. It is these works alone which prevented floodwater from entering his home. But the only effective solution is enlarging or extending the existing public sewerage system. New public surface water sewers are needed to provide additional capacity to cope with heavy rainfall.

8. Mr Marcic complained to his local authority in June 1992. Thereafter, despite repeated efforts by him to get something done, no steps were taken to remedy the underlying cause. The history is summarised by His Honour Judge Richard Havery QC: [2002] EWCA Civ 64, [2002] QB 929, 937-939, paras 12-16. Mr Marcic started these court proceedings in May 1998. The defendant, Thames Water Utilities Ltd, is the statutory sewerage undertaker for the area which includes Old Church Lane. Mr Marcic sought an injunction restraining Thames Water from permitting the use of its sewerage system in such a way as to cause flooding to 92 Old Church Lane, a mandatory order compelling Thames Water to improve the sewerage system, and damages.

9. Thames Water operates its sewerage system under statutory powers and subject to statutory duties. In these proceedings, for a reason which will become apparent, Mr Marcic has not sought to rely directly on any alleged contraventions by Thames Water of its statutory obligations. Instead Mr Marcic asserts (1) a common law claim in nuisance and (2) a claim under the Human Rights Act 1998 that Thames Water as a public authority has acted incompatibly with his Convention rights under article 8 (respect for family life and home) and article 1 of the First Protocol (protection of property). At a trial of preliminary issues Judge Richard Havery, sitting in the Technology and Construction Court, rejected the former claim and others (not now pursued) but upheld the latter. On appeal the Court of Appeal, comprising Lord Phillips of Worth Matravers MR, Aldous and Ward LJJ, found in favour of Mr Marcic on both claims (1) and (2): [2002] QB 929. Thames Water has appealed against that decision.

The statutory scheme

10. The starting point for any consideration of Thames Water's obligations and liabilities must be the statutory scheme under which it operates the sewers in question. Sewage disposal and drainage have been the subject of statutory regulation for 500 years. The first public general Act was the Statute of Sewers 1531. But the systematic construction of extensive networks of public sewers dates largely from the middle of the 19th century and was the responsibility of public water undertakers. Until comparatively recently public water undertakers were usually local authorities. The Water Act 1989 provided for the transfer of most of the statutory functions of the existing public water authorities to privatised water and sewage undertakers. These were regulated commercial companies, having broadly the same statutory powers and duties as the authorities they replaced.

11. The current legislation comprises the Water Industry Act 1991. This statute consolidated the relevant provisions of the Water Act 1989. The 1991 Act sets out the powers and duties of both water undertakers and sewerage undertakers. The exercise of these functions is subject to supervision and control by the Director General of Water Services. Thames Water is a commercial company carrying on business as a public sewerage undertaker within this statutory framework. It is one of ten appointed sewerage undertakers. Its appointed area is huge, extending from Cirencester to Brentwood and from Banbury to Crawley. It is responsible for 80,000 km of public sewers of varying sizes, serving 5.4 million connected properties and a population of 12 million.

12. The 1991 Act is extensive and I shall mention only the provisions of direct relevance to the issues arising in these proceedings. Part I of the Act makes provision for the office of Director General of Water Services. He is appointed by the Secretary of State. Section 2 imposes on the Secretary of State and on the Director, to use the statutory abbreviation of his title, wide ranging duties of a general character regarding the water industry. In short, the Director is the regulator of the water industry in England and Wales. He is required to exercise and perform his statutory powers and duties in the manner he considers best calculated to secure that the functions of a water undertaker and a sewerage undertaker are properly carried out. This duty includes ensuring that companies appointed as sewerage undertakers are able, by securing reasonable returns on their capital, to finance the proper carrying out of their functions. Commercial companies cannot be expected to take up appointments as sewerage undertakers unless there is a prospect of obtaining a reasonable rate of return on their invested capital. The Director is also required to protect the interests of customers of sewerage undertakers in respect of sewerage undertakers' drainage charges and in other respects.

13. Sections 18 to 22 of the Act make provision for enforcement orders. Enforcement orders are a means by which the Secretary of State and the Director enforce the obligations of a sewerage undertaker. These provisions are of central importance in the present case. So far as the present case is concerned their effect is as follows. Where the Director is satisfied that a sewerage undertaker is contravening a statutory requirement enforceable under section 18 he 'shall' by a final enforcement order make requisite provision for the purpose of securing compliance with that requirement: section 18(1). In certain circumstances, instead of taking steps towards making a final enforcement order, the Director has power to make a provisional enforcement order: section 18(2) and (3). A company is required to comply with an enforcement order, whether final or provisional: section 18(5).

14. Where contravention of a statutory requirement is enforceable under section 18, section 18(8) limits the availability of other remedies:

'(8) Where any act or omission constitutes a contravention of a statutory or other requirement enforceable under this section, the only remedies for that contravention, apart from those available by virtue of this section, shall be those for which express provision is made by or under any enactment and those that are available in respect of that act or omission otherwise than by virtue of its constituting such a contravention.'

15. The Director is not required to make an enforcement order if satisfied that the contravention is trivial, or that the company has given and is complying with an appropriate undertaking, or that the duties imposed on him by Part I of the Act preclude the making of the order: section 19. This last exception would cover a case where the Director considers that making an order would be incompatible with the policy objectives mentioned in section 2, such as securing that an undertaker is able, by securing a reasonable return on its capital, to finance the proper discharge of its functions. The Director is required to give notice if he proposes to make a final enforcement order or confirm a provisional enforcement order: section 20. The notice must be served on the company and also published. The Director must consider any representations or objections made to him.

16. Thus, a contravention of a statutory requirement to which section 18 applies does not necessarily result in an enforcement order. The sewerage undertaker may put matters right pursuant to an undertaking. Or other considerations, to which the Director is obliged to have regard, may be inconsistent with him making an enforcement order and thereby compelling the undertaker to rectify the breach.

17. Section 22 contains important provisions regarding the effect of an enforcement order. A company's obligation to comply with an enforcement order, whether final or provisional, is 'a duty owed to any person who may be affected by a contravention of the order'. A breach of this duty causing loss or damage to the person to whom the duty is owed is actionable at the suit of that person. In any ensuing court proceedings the company has a 'due diligence' defence. An enforcement order is also enforceable by civil proceedings brought by the Director for an injunction or other appropriate relief.

18. Part IV of the Act is concerned with sewerage services. Section 94 sets out the principal general duty of every sewerage undertaker: to ensure its area is properly drained. To this end the undertaker must provide an appropriate system of sewers:

'(1) It shall be the duty of every sewerage undertaker -

(a) to provide, improve and extend such a system of public sewers (whether inside its area or elsewhere) and so to cleanse and maintain those sewers as to ensure that that area is and continues to be effectually drained;'

19. On its face this duty is of an absolute character. This is not to say that 'effectually drained' sets an absolute standard. Flood water lying on a water meadow, for instance, is not of itself an indication that an area is not being properly drained. Effectual drainage is a question of degree. There will always be flooding caused by exceptional weather. Current sewerage systems are generally designed to cope with storms which may be expected to occur once in thirty years. The cost of improving systems beyond this, so as to cope with rarer events, would be excessive.

20. A freak event of this sort is not the explanation for the flooding in the present case. No one could suppose that external sewer flooding of residential property of the character and frequency suffered by Mr Marcic in recent years is compatible with Old Church Lane being effectually drained. Mr Marcic's difficulty on this point lies elsewhere.

21. Mr Marcic's difficulty is this. Section 94(3) provides, so far as relevant, that a sewerage undertaker's duty to provide an adequate system of public sewers under section 94(1) is enforceable by the Director under section 18, in accordance with a general authorisation given by the Secretary of State. Hence, as provided in section 18, the remedy in respect of a contravention of the sewerage undertaker's general drainage obligation lies solely in the enforcement procedure set out in section 18. Thus, a person who sustains loss or damage as a result of a sewerage undertaker's contravention of his general duty under section 94 has no direct remedy in respect of the contravention. A person in the position of Mr Marcic can bring proceedings against a sewerage undertaker in respect of its failure to comply with an enforcement order if such an order has been made. In the absence of an enforcement order his only legal remedy is, where appropriate, to pursue judicial review proceedings against the Director or the Secretary of State, who has similar enforcement functions regarding section 94, in respect of any alleged failure by the Director or the Secretary of State to make an enforcement order as required by section 18(1).

22. In the present case no enforcement order has been made against Thames Water in respect of the inadequate drainage of Mr Marcic's property. Nor has Mr Marcic advanced a complaint that by not making such an order the Director is in dereliction of his duty under section 18. Indeed, Mr Marcic seems to have made no complaint of any sort to the Director, although his opportunities in this regard were drawn to his solicitors' attention early in 1998. Rather, in advancing claims based on common law nuisance and under the Human Rights Act 1998, Mr Marcic seeks to sidestep the statutory enforcement code. He asserts claims not derived from section 94 of the 1991 Act. Since the claims asserted by him do not derive from a statutory requirement, section 18(8) does not rule them out even though the impugned conduct, namely, failure to drain the district properly, is on its face a contravention of Thames Water's general statutory duty under section 94. The closing words of section 18(8) expressly preserve remedies for any causes of action which are available in respect of an act or omission otherwise than by virtue of its being a contravention of a statutory requirement enforceable under section 18.

Providing more sewers

23. The House has had the advantage of receiving written submissions from the Director on the financial implications of carrying out remedial work. The cost per property of removing the risk of sewer flooding varies widely, from as little as £5,000 to more than £200,000, depending on the scale and nature of the necessary work. On average the cost per property is between £50,000 and £70,000. The trial judge found that the cost of alleviating the flooding problems of all customers in Thames Water's area who are in a similar position to Mr Marcic or whose properties are at risk of internal sewer flooding at least once every ten years would be £1bn. That estimate takes no account of future house building. The trial judge also found that under the prevailing system of priorities there was no prospect of any work being carried out in the foreseeable future to prevent flooding of Mr Marcic's property.

24. Sewerage undertakers receive no subsidy from public funds for works of this nature. The cost has to be met out of money received from customers by way of sewerage charges. But sewerage undertakers are not at liberty to fix the amount of sewerage charges at whatever amount they wish. The Director sets limits on these charges. Sewerage charges in respect of dwellings are the subject of charges schemes which require the approval of the Director: sections 142 and 143(6). In setting the limits on charges the Director proceeds on the basis that companies are expected to maintain current service levels. They are expected to ensure that, subject to annual variations in the weather, there is no increase in the number of properties at risk of internal sewer flooding and no increase in the number of actual incidents. Additionally the Director makes allowance for the cost of defined improvements. The current price limits, for the five year period commencing 1 April 2000, included provision for reducing within that period the number of properties at risk of internal sewer flooding from overloaded sewers. The planned reduction for the industry as a whole was 3,500 properties and for Thames Water 1,500 properties. No separate allowance was made for reducing the number of properties at risk of external sewer flooding.

25. In fixing charging limits the Director balances the need to alleviate sewer flooding, the cost of doing so and the consequent increase in sewerage charges. He also has to take into account further needs such as the need for investment to meet other environmental standards set by the government, often pursuant to EU Directives, and the need to maintain the sewerage infrastructure as a whole. It seems that in the past a cautious approach has been adopted by the Director, partly because of the lack of reliable information about the scale of the sewer flooding problem and the cost of dealing with it.

26. Prompted by the widespread floods of October 2000 the Director carried out further studies. For some time Thames Water and other sewerage undertakers, together with customer representatives, had been anxious to speed up the sewer flooding relief programme. Customer representatives were concerned that some customers faced repeated flooding. The sewerage undertakers said that current price limits prevented them from meeting customers' expectations. In March 2002 the Director issued a consultation paper 'Flooding from Sewers - a Way Forward' proposing that sewerage companies should deal more speedily with the more serious sewer flooding problems. In future they should include severe external flooding cases in their investment programmes. By March 2002 the Court of Appeal had given judgment in the present case. The consultation paper commented, at paragraph 2.9:

'Mr Marcic did not bring his case to Ofwat [the Office of Water Services]. Although the flooding was solely external, it was repeated and extreme. To this extent, the Court of Appeal's judgement that Thames Water could have done more to resolve the problem is consistent with the approach to priorities proposed in this paper.'

The work is done

27. In March 2002 Thames Water agreed with the Director that it would carry out further works at once. These works would free an additional 250 properties from the risk of internal sewer flooding and 250 other properties from frequent external flooding. For his part the Director would take into account the cost of these works, totalling £27 million, when fixing sewerage charges for the period 2005-2010. Thames Water then selected the schemes to which to apply this additional funding. The company used criteria, approved by the Director, based on the severity and frequency of the risk of flooding. One of the selected schemes related to Old Church Lane, Stanmore. This scheme would alleviate sewer flooding to ten properties, seven suffering from the risk of internal sewer flooding and three from the risk of external flooding. Mr Marcic's property was one of these. Work on this scheme began in April 2003 and was completed in late June 2003 at a cost of £731,000.

28. So, five years after Mr Marcic initiated his court proceedings the necessary work was done. As the Director noted in his consultation paper, Mr Marcic's case 'has highlighted the importance of robust and rational prioritisation schemes': paragraph 5.25. There remains the question whether Mr Marcic can recover damages.

The claim in nuisance

29. Problems arising from failure to carry out statutory drainage obligations are not new. Section 15 of the Public Health Act 1875 obliged local authorities to make 'such sewers as may be necessary for effectually draining their district'. On several occasions the courts considered what remedies were available for breach of this obligation.

30. One such case is Robinson v Workington Corpn [1897] 1 QB 619, where the facts were strikingly similar to the present case. Mr Robinson's houses were damaged by water overflowing from the council's public sewers. The sewers were adequate for the district until new houses were built. Mr Robinson claimed damages in respect of the council's failure to build a new sewer of sufficient dimensions to carry off the increased volume of sewage. The Court of Appeal dismissed the claim, following earlier cases such as Glossop v Heston and Isleworth Local Board (1878) 12 ChD 102. The Public Health Act 1875 expressly provided a mechanism for enforcing performance of the statutory drainage obligation. Thus the question of what remedy was available for breach of the drainage obligation was a question of interpretation of the statute. Section 299 of the 1875 Act provided that in cases of default the Local Government Board should make an appropriate order which, if not complied with, was enforceable by a writ of mandamus. Was this intended by Parliament to be the only remedy for breach of the drainage obligation? Lord Esher MR said, at p 621:

'It has been laid down for many years that, if a duty is imposed by statute which but for the statute would not exist, and a remedy for default or breach of that duty is provided by the statute that creates the duty, that is the only remedy. The remedy in this case is under section 299, which points directly to section 15, and shews what is to be done for default of the duty imposed by that section. That is not the remedy sought for in this action, which is brought to recover damages.'

31. The existence of this general principle of statutory interpretation, and the correctness of this application of the principle to the Public Health Act 1875, were confirmed by your Lordships' House in Pasmore v Oswaldtwistle Urban District Council [1898] AC 387. The courts have consistently followed this view of the law in relation to the Public Health Act 1875 and in relation to the Public Health Act 1936: see, for instance, Hesketh v Birmingham Corpn [1924] 1 KB 260 and Smeaton v Ilford Corpn [1954] 1 Ch 450. In both these cases the court expressly rejected a claim for nuisance: see Scrutton LJ in the Birmingham case, at pp 271-272, and Upjohn J in the Ilford case, at p 463.

32. In the present case the Court of Appeal felt able to reach a different conclusion on the scope of the remedies available to Mr Marcic. They held that the Glossop line of cases, if and in so far as they dealt with claims in nuisance, cannot survive recent developments in the common law of nuisance. The old distinction between misfeasance and non-feasance no longer rules the day. Goldman v Hargrave [1967] 1 AC 645 and Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] QB 485, building on the decision in the leading case of Sedleigh-Denfield v O'Callaghan [1940] AC 880, establish that occupation of land carries with it a duty to one's neighbour. An occupier must do whatever is reasonable in all the circumstances to prevent hazards on his land, however they may arise, from causing damage to a neighbour. In Goldman's case a redgum tree in Western Australia was struck by lightning and set on fire. The fire spread to neighbouring property. In Leakey's case natural causes were responsible for soil collapsing onto neighbouring houses in Bridgwater, Somerset. In both cases the landowners were held liable to their neighbours for the damage caused. A similar approach was adopted regarding loss of support due to a land slip in Holbeck Hall Hotel Ltd v Scarborough Borough Council [2000] QB 836 and incursion of tree roots in Delaware Mansions Ltd v Westminster City Council [2001] UKHL 55; [2002] 1 AC 321. In the present case the Court of Appeal said, at p 994, para 83:

'The sewers form part of a system which Thames are operating as a commercial venture in order to make profits for their shareholders. Thames are in no more favourable position than a landowner on whose property a hazard accumulates by the act of a trespasser or of nature. At all material times Thames have had, or should have had, knowledge of the hazard. If the principles identified in the Goldman [1967] 1 AC 645 and Leakey [1980] QB 485 cases are applied, these facts placed Thames under a duty to Mr Marcic to take such steps as, in all the circumstances, were reasonable to prevent the discharge of surface and foul water onto Mr Marcic's property.'